Four key takeaways: currency and risk management

March 18, 2016
Tom Gavaghan

We were excited to team-up with Global Treasury Partners on our second Treasury Best Practices Webinar Series featuring Currency and Risk Management. For those treasury and finance professionals who weren’t able to attend the webinar, here is a recap of the four key takeaways.

This session was designed to educate treasury and finance professionals on technology’s involvement in managing currency risk programs, and more critically, to provide best practices in managing these programs. There are four specific areas of focus to ensure currency risk management programs are successful and reduce the risk of these exposures at your corporation, namely 1) Exposure Management; 2) Front Office; 3) Middle Office; 4) and Back Office.  

Additional webinars: Treasury Best Practices Webinar Series

Additional reading: eBook: The CFO’s Toolkit - Minimize Risk and Ensure Compliance

Exposure Management

Without properly aggregating currency exposures, companies are aiming at a moving target. Forecasting is the most crucial component to proper exposure management.  As a best practice, having the proper tools in place to aggregate exposures globally will ensure that the various elements that make up the company’s risk of foreign currency exposure, both the cash flow and balance sheet side, are identified and aligned.

Front Office

The primary Front Office function is managing economic and accounting objectives. The company’s alignment and agreement to the economic and accounting objectives of the risk management program is key to the Front Office functions carried out by the company. Without these objectives in place, the company lacks any benchmarks to measure their performance against, and ultimately will more likely expose themselves to additional unnecessary risk. There are many stakeholders involved in this process, but the policies put in place must be adhered to as the company goes to market to hedge against these exposures.   

Middle Office

The functions carried out in this Middle Office process are done to assess risk and performance in the past, present and the future. It’s here, that the risk management program put in place is tested. Real time limit monitoring is needed to protect the company against counterparty and sovereign risk.  Additionally, testing is needed to protect against potential volatility. Trying to manage these controls without a technology solution often times proves to be difficult and ineffective due to the complexity in properly calculating and performing these analyses.

Back Office

The back office efforts are often times where we see the most operational headaches in a company. The tasks of confirming settlement instructions, and making payments is a convoluted process composed of spreadsheets, email notifications and banking portals. Centralizing the Back Office operations through a single solution, achieving true Straight Through Processing, alleviates exposures to operational risk that are inherent in manual processes.  Additionally, automating the accounting treatment based on the valuations performed in the Middle Office is an easy way to increase efficiencies.

For our Currency and Risk Management webinar, technology integration was the overarching theme, the enabler to effectively facilitate a currency risk management program. Treasury teams should be assessing their technology strategy and looking for holistic, cloud based solutions covering their liquidity as well as currency risk needs through single providers. Doing so can help ensure the mitigation of your company’s FX risk and also eliminate the operational struggles presented by current manual workflows. For more insight into currency risk management for today’s corporations, please see our recent article on GTNews.

See the slides from this webinar:  Kyriba currency risk management webinar

Comments

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